Rich Dad Poor Dad

Introduction

Robert Kiyosaki, author of the best-selling book Rich Dad Poor Dad, offers financial planning insights and explores how wealthy people think.

• However, his financial history is complex. His company, Rich Global LLC, filed for bankruptcy, and he has acknowledged being for over 1.2 billion in debt. Despite this, Kiyosaki defends his approach by claiming to use debt strategically to acquire assets that generate income.

Rich Dad, Poor Dad

One of the reasons the rich get richer, the poor get poorer, and the middle class struggles in debt is that the subject of money is taught at home, not in school.

• Most of us learn about money from our parents.
• This raises a critical question: What can poor parents teach their children about money (more specifically, wealth creation), other than studying hard and graduating with excellent grades?
• School, on the other hand, focuses on scholastic and professional skills, but not on financial skills. This explains why highly intelligent professionals - such as bankers, doctors, and accountants who earned excellent grades - may still struggle financially throughout their lives.
• As a result, the cycle of poverty repeats endlessly.

The contrasting mindsets of Robert Kiyosaki's two fathers provide valuable insights into the power and effect of financial beliefs on one's life.

• One dad would say, "The love of money is the root of all evil". The other said, "The lack of money is the root of all evil".
• One dad had a habit of saying, “I can’t afford it.” The other dad forbade those words to be used. He insisted I ask, “How can I afford it?” One is a statement, and the other is a question.
  
• One dad thought that the rich should pay more in taxes to take care of those less fortunate. The other said, “Taxes punish those who produce and reward those who don’t produce.”
• One dad recommended, “Study hard so you can find a good company to work for.” The other recommended, “Study hard so you can find a good company to buy.”
• One dad said, “The reason I’m not rich is because I have you kids.” The other said, “The reason I must be rich is because I have you kids.”
• One encouraged talking about money and business at the dinner table, while the other forbade the subject of money to be discussed over a meal.
• One said, “When it comes to money, play it safe. Don’t take risks.” The other said, “Learn to manage risk.”
• One believed, “Our home is our largest investment and our greatest asset.” The other believed, “My house is a liability, and if your house is your largest investment, you’re in trouble.”
• Both dads paid their bills on time, yet one paid his bills first while the other paid his bills last.
• One dad believed in a company or the government taking care of you and your needs. The other believed in total financial self-reliance.
• One dad struggled to save a few dollars. The other created investments.
• One dad taught me how to write an impressive resume so I could find a good job. The other taught me how to write strong business and financial plans so I could create jobs.
• My poor dad always said, “I’ll never be rich.” And that prophecy became reality. My rich dad, on the other hand, always referred to himself as rich. He would say things like, “I’m a rich man, and rich people don’t do this.” Even when he was flat broke after a major financial setback, he continued to refer to himself as a rich man. He would cover himself by saying, “There is a difference between being poor and being broke. Broke is temporary. Poor is eternal.”
• My poor dad would say, “I’m not interested in money,” or “Money doesn’t matter.” My rich dad always said, “Money is power."

Although both fathers had tremendous respect for education and learning, they fundamentally disagreed about what was important to learn.

• The Poor Dad wanted me to study hard, earn a degree, and get a good job to earn money, encouraging me to become a professional.
• The Rich Dad encouraged me to study to become rich, to understand how money works, and to learn to have it work for me. His mantra was: "I do not work for money! Money works for me!"

Robert Kiyosaki stresses that financial education is crucial for enabling a person to gain power over money and begin building wealth.

• Because most people go through school and never learn how money works, they spend their lives trapped in the cycle of working for money.

The Rich Don't Work For Money

You are only poor if you give up.

• The most important thing is simply to take action.
• Most people only talk and dream of getting rich and spend all their time thinking about how to make money,
• Remember, opportunities come and go. Recognizing when to make quick decisions is a valuable skill, a truth that is especially critical now in current stock market trading.

Moreover, life is the best teacher of all, yet it does not talk to you the way teachers do in school.

• Instead, life pushes you around, and each push is a wake-up call.
• Many people simply give up and let life push them, while others get angry and fight back by blaming everyone else - their boss, job, spouse - for their problems, instead of looking at themselves.
• Those who lack the courage to stand up and give up every time life pushes them will live their entire lives playing it safe, doing all the "right things," saving themselves for some event that never happens, and dying a boring old man. The truth is, they wanted to win, but the fear of losing was greater than the excitement of winning.
• Never blame others for the problem; otherwise, you fail to realize that you are the problem. It is far easier to change yourself, learn something, and grow wiser than to try and change everyone else in the world.
• Only a select few learn the lesson and move on.

The first lesson taught by the Rich Dad is: "The poor and the middle class work for money. The rich have money work for them."

• When it comes to money, an individual who accepts the reality of a poor wage is essentially exploiting themselves out of fear. Despite this risk, many people prioritize playing it safe and feeling secure.
• This mindset is reinforced by the fact that school is a great place that teaches us how to work for money, but never how to make money work for us.

People's lives are often controlled by two emotions: fear and greed (desire).

• Fear of bills, job loss, inadequate savings or starting over keeps many people stuck in unfulfilling jobs. Consequently, most people become a slave to money, and then get angry at their employers. Meanwhile, some rich people are fear losing the money and keep working even though they have plenty.
• Many people work for money because they desire what money can buy, but the joy is often short-lived. They soon need more money for more joy, more pleasure, more comfort and more security.
• This relentless cycle of chasing money to afford more spending keeps them trapped in the so-called "rat race".
• Fear and ignorance about money control our lives; we get up every day and go to work for money, not taking the time to ask the question, ‘Is there another way?’
• The thinking of "I am not interested in money" is simply a denial of the truth. If they were not interested in money, then why would they work at a job for eight hours a day?

Therefore, to break free, we need to shift from being controlled by emotions (i.e. fear and desire) to think rationally.

• Instead of working hard and tirelessly for little money, clinging to the illusion of job security, looking forward to a three-week vacation each year, and perhaps a skimpy pension after 45 years of service, we should make our money work for us.
• We should use our imaginations to identify an opportunity to make money. For example, by starting our own business, we are in control of our own finances, not dependent on an employer. The best part is that our business can generate money for us, even when we are not physically there.

NOTE: While Rich Dad Poor Dad introduced the philosophical idea that “the rich don’t work for money”, it was only in Kiyosaki’s later book Rich Dad's Cashflow Quadrant that he identified Employees (E) and Self-Employed (S) individuals as those who work primarily for job security and active income, effectively exchanging time for money. Self-Employed (S) individuals value freedom and control, often believing that “if you want something done right, do it yourself”. In contrast, Business Owners (B) build and leverage systems and teams that generate income independently of their personal effort, while Investors (I) use money to acquire assets - such as real estate or stocks - that produce ongoing cash flow. Together, the B and I quadrants represent the path toward financial and personal freedom.

The Power of Financial Literacy

Too many people are focused too much on money and not enough on their greatest wealth: education.

• Only if people are prepared to be flexible, keep an open mind and learn, they will grow richer and richer despite tough changes.
• Intelligence solves problems and produces money, but money without financial intelligence is money soon gone.

Many people fail to realize that financial security is not based on how much money they make, but on how much money they keep.

• Countless lottery winners and high earners illustrate this point - they become rich quickly but end up back where they started due to a lack of self-discipline and financial literacy.

The key lies in understanding the true definitions of "asset" and "liability" in practical terms.

• An asset puts money in your pocket (i.e. income), while a liability takes it out (i.e. expense).
• While buying assets seems straightforward, many struggle because they actually focus on acquiring liabilities with ongoing expenses, such as mortgages and car loans.
• Making the decision to own a house that is too expensive rather than starting an investment portfolio impacts an individual in at least the following three ways:
• Lost time, during which other assets could have grown in value.
• Lost capital, which could have been invested instead of paying high home maintenance expenses.
• Lost education, as not having capital to invest prevents them from gaining the practical knowledge of investing.

Instead of working tirelessly just to earn a living, shift your focus from simply increasing your income to building assets that generate income for you.

• Keep liabilities and expenses down so more money is available to continue pouring into the income-generating assets.
• Invest your income (i.e., salary) in true assets like real estate that produces rental income, stocks that pay dividends, or intellectual property that generates royalties.
• These assets allow your money to work for you, providing a steady stream of income that can be reinvested or used to offset expenses.

In summary, rich people acquire assets that generate wealth. The poor primarily have expenses, and the middle class often acquire liabilities that they mistake for assets.

• The middle class, whose primary income is their salary, often finds itself in a constant state of financial struggle. As their wages increase, so do their taxes and expenses, putting them in a perpetual "rat race." Worse, their livelihood becomes entirely dependent on their employer.

Remember, wealth is defined as a person's ability to survive a certain number of days forward - or, to put it simply, "If I stopped working today, how long could I survive?"

• By this definition, a person is considered wealthy (or financially independent) when their income generated from assets each month can fully cover their monthly expenses.

Mind Your Own Business

Financial struggle is often a direct result of people working all their lives for someone else.

• Consequently, many will have nothing to show for their efforts at the end of their working days.

Our current educational system focuses on preparing today's youth to get good jobs by developing scholastic skills.

• Often, students become what they study (e.g., if you study law, you become an attorney), and their lives end up revolving around their wages (i.e., the income column).
• Yet, to become financially secure, a person needs to mind their own business - a business that revolves around the asset column that generates income.
• Otherwise, we only focus on income statements, constantly thinking: "I need a raise," "If only I had a promotion," "I'm going to work overtime," or "Maybe I can get a second job."

"Start minding your own business" means keep your daytime job, but begin buying real assets, not liabilities or personal effects that have no real value once you get them home. Real assets fall into the following categories:

• Businesses that do not require my presence: I own them, but they are managed or run by other people. If I have to work there, it is not a business; it becomes my job.
• Stocks
• Bonds
• Income-generating real estate
• Notes (IOUs)
• Royalties from intellectual property such as music, scripts and patents.
• Anything else that has value, produces income or appreciates, and has a ready market.

NOTE: There are times when people cannot find employment and starting a company seems like the best solution. But the odds are against success: nine out of ten companies fail within five years.

As your cash flow from assets grows, you can then indulge in some luxuries without jeopardizing your financial future.

• An important distinction is that rich people buy luxuries last, while the poor and middle class tend to buy luxuries first.
• The poor and middle class tend to buy luxuries (i.e., liabilities disguised as assets, like big houses and jewellery) with their hard-earned income to project an image of wealth. They may look rich, but in reality, they just get deeper in debt on credit, incurring a significant financial burden.
• The old-money people - the long-term rich - on the other hand, prioritize building true income-generating assets and only indulge in luxuries using the income generated from those assets..

The History of Taxes and The Power of Corporations

Historically, the idea of taxes has been popularized by framing them as a way to redistribute wealth from the rich to the poor - a concept often likened to Robin Hood and his Merry Men. However, this narrative may be misleading.

• Originally, in England and America, there were no regular taxes, except for occasional temporary levies needed to pay for wars.
• The idea of a regular income tax gained popular acceptance by telling the poor and the middle class that these taxes were primarily created to punish the rich.
• In the business world, efficiency is valued. Companies that minimizes expenses and headcount are typically praised by investors.
• In contrast, governments operate with different objectives. If a government department fails to spend its entire budget allocation, it risks losing those funds in the next budgeting cycle. Therefore, avoiding a surplus is not necessarily seen as positive outcome.
• As government programs and services expand, more tax dollars are needed. This expansion inevitably leads to a situation where even lower-income levels (i.e., the poor and the middle class) are subject to significant taxation.

The reality today is that the wealthy are highly adept at minimizing their tax burden.

• Every time people try to punish the rich, the rich do not simply comply and voluntarily pay more taxes.
• Instead, they actively search for legal ways to minimize their tax obligations.
• They possess the money, power, and intent to change things: they hire smart attorneys and accountants and persuade politicians to change laws or create legal loopholes.
• The rich reduce their taxable income primarily through corporate structures and associated loopholes.
• A corporation earns, spends everything it legally can (e.g., company retreats, vehicles, employee health insurance, and meals), and is then taxed only on the remaining profit.
• Increasingly, governments use the tax laws to provide incentives to business owners and investors - often to create jobs and housing.
• These incentives reduce the taxes of the rich.
• Consequently, the primary source for the government to drive tax revenue is the middle class.

Employees, on the other hand, are taxed on their entire earnings (salary) and must live on what remains.

• The poor and middle class do not have the same resources as the rich to effect legislative change.
• The harder the middle class works, the more they are taxed.
• This can lead to a feeling of working for multiple entities: employers, bank through loans and the government through taxes.

In summary, as governments expand and their financial needs grow, they increasingly draw funds from the middle class (the workers).

• This is compounded by the fact that governments typically favour professional investors and business owners, resulting in workers paying substantial taxes while the wealthy pay minimal taxes.

The Rich Invent Money

We all have tremendous potential and are blessed with unique gifts.

• Yet, the one thing that holds all of us back is excessive fear and self-doubt, rather than a lack of technical knowledge or personal genius.
• Often, in the real world, it is not the smart who get ahead, but the bold.

Rich dad constantly said, "money is not real".

• The poor and middle class work for money, but the rich make money. The more real you believe money is, the harder you will work for it. If you can grasp the idea that money is not real, you will grow richer faster.
• In the Information Age, a few individuals can get ridiculously rich from nothing more than ideas and agreements.

Great opportunities are not seen with your eyes; they are seen with your mind, recognizing what others miss.

• A period of a terrible economy (e.g., the dot-com bubble burst) can present the perfect market condition to invest in the stock market and purchase real estate properties. A few years later, the real estate market often rebounds with a much higher price.
• Investing in stock shares is not gambling if you know what you are doing. It is gambling only if you are throwing money into a deal and praying. There is always risk, so learn to manage risk instead of avoiding it.

Work to Learn - Don't Work For Money

The world is filled with smart, talented, educated and gifted people.

• However, when it comes to money, the only skill most people know is to work hard.
• Financial intelligence, on the other hand, is a synergy of four key technical skills: accounting, investing, marketing, and law. Combining these four skills and learning to make money with money is easier than most people believe.
• Accounting - Financial literacy to build business or assess investments.
• Investing - The science of money making money.
• Understanding markets - The science of supply and demand.
• The law - The awareness of accounting corporate, state and federal regulations.
• Of all these, the most important specialized skills are sales and marketing. To illustrate, a great writer may not sell their books well if they are not skilled in marketing. After all, the recognition is for a "best-selling author", not just a "best-writing author."

In school and in the workplace, the popular opinion is that in order to make more money or get promoted, you need to specialize.

• That is why medical doctors immediately seek a specialty, such as orthopaedics or paediatrics, and the same is true for accountants, architects, and lawyers.
• However, when your life skill is dedicated to a specialty valuable in only one industry, your expertise may not be as valuable to another if you are displaced. For example, a displaced senior pilot would have a hard time finding an equivalent high-paying job teaching in a school
• Overspecialization is often what creates the need for union protection.

Rich dad encouraged us to know a little about a lot, including learning by osmosis - listening to bankers, lawyers, accountants and brokers.

• In fact, the wealthy often groom their children across various departments to learn all aspects of the business system.
• Rich dad encouraged working with people smarter than we are and bringing smart people together to work as a team - creating a synergy of professional specialties.

There is a horrible management theory that states: "Workers work just hard enough not to get fired, and owners pay just enough so that workers won't quit."

• While we are trapped in the life-long process of bill paying and living within our means, we should take a longer view of our life.
• Instead of simply working for money and security, Robert Kiyosaki encourages people to take a second job that will teach them a second skill.

Overcoming Obstacles

Even financially literate people can struggle to build wealth. Here are five common obstacles.

Fear of failures

• The fear of losing money is real. Everyone has it, even the rich. The primary difference between a rich person and a poor person is how they manage that fear.
• For most people, the reason they do not win financially is that the pain of losing money is far greater than the joy of being rich.
• There is a saying in Texas: "Everyone wants to go to heaven, but no one wants to die." Similarly, most people dream of being rich but are terrified of losing money, so they never get to "heaven".
• However, failure is part of success, just as we learn to walk by falling down. Remember, winners see losing as a chance to learn and grow, while losers become discouraged by setbacks.
• Those who never try, never win.

Self-doubt and cynicism

• Negative self-talk and comparing yourself to others can severely hold you back. If we continue to stay with what is safe, opportunities will pass us by.
• Instead of dwelling on "what ifs" and unchecked self-doubt, winner use analysis to see opportunities that everyone else missed.

Laziness

• Sometimes, people stay busy to avoid something that they do not want to face. When reminded of a neglected task, they often respond with anger or irritation.
• Instead of saying, "I cannot afford it," try thinking, "How can I afford it?" This simple question opens up the brain and forces it to think and search for creative answers.
• To overcome laziness, ask yourself "What is in it for me" to get motivated (e.g. a desire for a better life).

Bad habits

• One bad habit is neglecting to "pay yourself first".
• Let the pressure of creditors motivates you to find additional income streams.

Arrogance

• Many people use arrogance to try to hide their ignorance.
• The wealthy are not always the smartest, but they are often lifelong learners with a broad knowledge base.
• Humility allows you to ask questions, seek guidance, and continuously improve.
• When you are ignorant in a subject, start educating yourself by finding an expert in the field or a book on the subject.

Getting Started

10 steps to awaken your financial genius.

• Find a reason greater than reality: the power of spirit
• A strong reason or purpose is a combination of what you truly want and what you passionately don't want.
• Without a powerful underlying reason, achieving anything significant in life will be difficult.
• Make daily choices: the power of choice
• Financially, with every dollar we receive, we hold the power to choose our future: to be rich, poor, or middle class. Our spending habits are a direct reflection of our financial future.
• Invest first in financial education, rather than simply buying investments.
• Choose friends carefully: the power of association
• Friends who are focused on money often discuss business, investing, and opportunities, including insider knowledge.
• Conversely, observe friends who struggle financially to learn valuable lessons on what not to do.
• Master a formula and then learn a new one: the power of learning quickly
• Be careful with what you study. When it comes to money, the masses generally have one basic formula learned in school: Work for money.
• If you are tired of what you are doing or you are not making enough, the solution is simple: change the formula by which you make money.
• In today's fast-changing world, it is not so much what you know that counts (because knowledge quickly becomes old), but how fast you can learn.
• Pay yourself first: the power of self-discipline
• If you cannot control yourself, you should not try to get rich. A lack of self-discipline is what causes most lottery winners to quickly go broke.
• People who have low self-esteem and a low tolerance for financial pressure will rarely become rich.
• Let the pressure of creditors inspire you to go out and create more money, rather than pay them before paying yourself.
• Pay your brokers well: the power of good advice
• Find advisors (brokers, lawyers, accountants) who genuinely have your best interests at heart.
• Information is priceless, and a good advisor provides critical information while taking the time to educate you.
• If all you focus on is cutting their commissions, why should they prioritize helping you succeed?
• Be an Indian giver: the power of getting something for nothing
• The financial goal is to invest for a return so quick that you can pull out your initial capital, leaving you with a "free" asset.
• This strategy should only be pursued with a limited, affordable risk - using money you can afford to lose.
• Use assets to buy luxuries: the power of focus
• Use the desire for luxuries as motivation to inspire and motivate your financial genius to invest in income-generating assets as a strategic form of delayed gratification.
• Choose heroes: the power of myth
• Heroes not only inspire you, but also make things look easy.
• "If they can do it, so can I."
• Teach and you shall receive: the power of giving
• If you want something - whether it is knowledge, money, smile, love or friendship - you first need to give. Then, it will come back to you in abundance.

Summary

The second half of Rich Dad Poor Dad heavily promotes Robert Kiyosaki's real estate strategy of buying and reselling at opportune market moments, implying that wealth creation is straightforward and easy.

• However, this approach might not be as feasible today due to inflated property prices. The high upfront costs could result in significant debt burdens.

That being said, if you are interested in Robert Kiyosaki's overall financial philosophy, his book Rich Dad's Cashflow Quadrant and Why the Rich Are Getting Richer offer a deeper exploration of his thinking.